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Why Shares of General Motors Fell More Than 11% in January

By John Rosevear – Feb 1, 2016 at 6:10PM

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Shares of America's largest automaker fell in a broad-based selloff of auto stocks in January. But is GM now a bargain, or is it cheap for good reason?

What: Shares of General Motors (GM -5.08%) dropped 11.4% in January. The General's common stock opened the month at $33.45, and closed at $29.64 on Friday, Jan. 29.

So what: GM was caught in a broader sell-off of auto stocks. Most of its major global rivals saw similar declines during the month. Investors have expressed concern that growth in the world's two largest new-car markets may be hard to come by for a while: U.S. auto sales may be near a cyclical peak just as China's growth has stalled. 

Some investors are also concerned that GM, and other established automakers, could be at risk of disruption from Silicon Valley efforts to to develop advanced alternatives to traditional gas-powered-vehicle ownership. 

Now what: Even if the U.S. market is peaking, conditions are still nearly ideal for GM's mix of products. The company is generating big profit margins in North America on a strong mix of trucks and SUVs, and that's likely to continue for a while longer. Elsewhere, GM is well-positioned to weather any economic storms, with a cash reserve of over $20 billion and a careful grip on costs.

Meanwhile, GM has made a surprisingly strong high-tech showing in recent months, with an impressive new electric car and a major investment in the Lyft ride-hailing service putting some real teeth into CEO Mary Barra's pledge to disrupt GM before Silicon Valley does. 

At current prices, GM's dividend yield is close to 5%. Barra has a credible plan to boost the General's bottom line significantly by early next decade, no matter what Silicon Valley cooks up. For long-term GM investors, there's no urgent need to sell. 

John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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